Library ~ The Benefits of a Delaware Finance Holding Company

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Library ~ The Benefits of a Delaware Finance Holding Company

DMS has one of today's most modern online reference libraries, updated as changes in regulations occur.

It contains critical information that may affect a client's state tax position at any given time.

Employing a Delaware Investment Holding Company to Hold Stocks, Bonds, and Other Securities

A parent company (Parent) in State X owns stocks, bonds, and other securities. Parent’s home state has a 10% tax rate. Income from investments equals $50,000,000 annually.

TYPICAL TAX SAVINGS SOLUTION

Parent creates subsidiary, a Delaware Investment Holding Company operated as a bona fide corporation, separate and distinct from Parent.

Parent contributes investments to subsidiary in a non-taxable Section 351 transfer.

Subsidiary now has investments received as additional paid in capital and records income from investments

Investment income is tax free in Delaware.

TAX ANALYSIS BEFORE DHC CREATED

Parent Income Including $50,000,000
of Investment Income			$90,000,000
Deductions			10,000,000

Taxable Income			$80,000,000
State Tax Rate			10%

State Tax Due			$8,000,000

TAX ANALYSIS AFTER DHC SUB CREATED

In Parent State

In Delaware

Parent Income	$40,000,000	Sub Investment Income	$50,000,000
Deductions	10,000,000	State Tax Rate	0%

Taxable Income	$30,000,000	State Tax Due	$ 0
State Tax Rate	10%

State Tax Due	$3,000,000

One can see the Parent saves $5,000,000 (8,000,000-3,000,000) by employing a DHC and moving the investment income from State X to Delaware. Since passive income is not taxable in Delaware, the strategy is successful. (Please note that investment income could also be loaned back to Parent to further create an additional interest expense deduction for Parent and yield additional tax savings.)

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